Diversifying Vodacom?

1 October 2008

Paul Booth, Global Research Partners

Vodacom has traditionally been a cellular player within the African continent with a direct presence in the DRC, Lesotho, Mozambique, South Africa and Tanzania. Do recent announcements indicate the start of its diversification?

Vodacom’s predominant market has been the South African one, which accounts for some 63% of its total subscriber base of 24,8m (as at the end of its financial year 31 March 2008). Recently, however, Vodacom has embarked upon a strategy that will focus on horizontal growth through Vodacom Business, ie, IT, data centres and the fixed line space; and on increasing and extending its African presence, which had previously been limited to its GSM activities.

Two recent acquisitions

To this end, Vodacom has already made two initial transactions.

The first was the purchase of 51% of Storage Technologies Services (StorTech), a managed enterprise data centre services company that provides a range of storage and security services. This business was previously part of MB Technologies but had more recently been management-owned.

The second, and much more significant, is the $700m buy-out of the carrier services and business network solutions units of Gateway Telecommunications SA (GTSA), a black-owned multinational telecommunications service provider. (The broadcasting services of GTSA were not part of the deal.)

Gateway is Africa’s largest independent provider of interconnection services through satellite and terrestrial network infrastructure for both local and international telecommunications companies. It has customers in 40 African countries; has offices in several of these including Angola, Cameroon, Ghana, Nigeria, Mozambique and Tanzania; and had sales in 2007 of $257m.

Only last year, Gateway acquired GS Telecom for $37,5m and committed to a 155 Mbps circuit from SEACOM, the first fibre-optic cable being laid on Africa’s east coast and connecting to Europe.

Also involved in the deal is the purchase of 100% of Gateway Telecommunications, Gateway Communications, Gateway Communications Mozambique LDA, Gateway Communications (Tanzania) and GS Telecom and their respective subsidiaries.

Future ownership question marks

Obviously the above is very significant in the development of the new strategy of Vodacom; however it is overshadowed by the question marks over its future ownership.

* Vodafone is looking to take an extra stake in Vodacom.

* Globacom (Nigeria) is looking at a deal with Telkom SA that includes Vodacom.

* Oger Telecom (Cell C owners with Saudi Telecom as its major shareholder) has made approaches to Telkom SA.

* Mvelaphanda has also made a bid for Telkom SA that precludes Vodacom.

Opinion

Will all this uncertainty put the brakes on further Vodacom activities or will it carry on regardless? Certainly the recent moves have created a real competitor in Africa to MTN. There are some interesting times ahead.

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